Friday, July 14, 2006

Freehold!

Before 2002 there was no such thing as ownership of private property in the UAE. I would venture to say that this was so even with regard to most of the local population. My understanding is that land was provided to locals as grants by the ruling families, who presumably owned everything. So, the buying and selling of private property seems to be a new thing for just about everyone here.

I remember the initial stirrings in 2002. To my recollection, Emaar's Springs and the Greens were among the first properties to go on sale. Prices starting around Dhs 180,000 (US $50,000) were being advertised. It seemed like a tempting proposition, but was it perhaps just a sales gimmick. I remember thinking, "Is it really possible for foreigners to buy a home here?"

Before I could give any particular ad much consideration, it would soon be replaced by a Sold Out announcement. That pattern of advertisement or press release would repeat itself time and time again. Only toward the the middle of 2005 would the pattern of New Launch followed by Sold Out begin to be supplanted--by the likes of only 90% Sold.

The Scene Today

By mid-2006 the freehold market appears to have taken hold in a big way, even spreading across the borders to include most of the Gulf states. Dubai, of course, is the place where it all began, and the extent to which its economy has been transformed as a result is incredible.

Dubai's post-federation economy was once sustained primarily by oil and trade and a growing tourism sector. Its economy now is dominated, more than anything else, by construction and real estate. At the same time the more traditional industries, apart from oil, continue to expand while new industries like commerce and retailing begin to flourish as well. The economy of Dubai is at once becoming enormously diversified, while at the same time being propelled by a massive property and construction industry--all the result of the 2002 edit by its rulers to introduce freehold.

Initial Stirrings

To some extent, Dubai Marina is the ultimate symbol of Dubai's adoption of freehold. It is the place where the decision to reform the property sector seems to have originated, preceding the actual announcement of freehold by several years. Indications are that planning for Dubai Marina began as early as 1996, with blueprints drawn up by 1998 and actual construction of the Marina waterway beginning in 2001--all of which predates the 2002 announcement of freehold. Today, in terms of the scale of projects completed, near-completed, underway and soon to break ground, Dubai Marina is the largest single construction zone not only in Dubai but around the Gulf. It is both the place where it all began and the place where the sheer scale of the transformation taking place can be best appreciated. One cannot help but be astonished while driving past the Marina's endless rows of towers along Sheikh Zayed Road.

Pending Outcomes

Such is the phenomenon of freehold in the UAE today. The model of development in Dubai is being adopted hook, line and sinker by Abu Dhabi--not to be outdone. It has its own massive schemes beginning to move from drawing board to construction site, while other emirates follow with their own, humbler versions. What one must expect is that this whole process will transform the UAE not only economically and visually, but socially as well. Expats, along with locals, and even non-resident investors from abroad will all have a vested interest in what goes on in the UAE.

5 comments:

Anonymous
said...

What a wasted oppertunity the jumeirah beach residence is. Instead of building the best-designed towers in the world they decide to go cheap and recreate soviet era commieblocks but at 3 times the scale. Apart from that, the marina's great.

I think we really have to wait and see the final outcome, when the towers are finished. It's hard to judge concrete construction until finished because the surface details can make all the difference between beauty and what looks like crumbling rubble. The JBR renders all look pretty nice, and sometimes the actual projects turn out looking even better than the renders.

I have yet to see any freehold property for sale to expatriates. No matter how many times the word is used by the advertisers, the government and the developers, the fact remains that the property is not freehold.

The actual situation is that all expatriate-owned property is leasehold. No amount of repeatedly stating "it's freehold" will change that fact.

Sure, you might own the building, but the ground on which it stands remains in someone else's ownership. So if the landowner decides, for example, to increase his fees for letting you park your house on his land, you are obliged to pay. The small print in the ownership agreement used to allow the landowner to repossess property of the owner of the building did not pay the ground rent or maintenance charges. That was true of The Lakes et al; I don't know if it is still true.

Owners are forever vulnerable to a greedy landowner increasing his maintenance charges. There's nothing in the legal paperwork to limit the amount of increase. In 2003 I was quoted Dh 9 per square foot per year for maintenance charges in The Greens apartments. What is the rate now?

The best anyone can hope for in an apartment is commonhold, where all owners each hold a stake in the building as a whole and the land it stands on. That cannot happen while the land itself belongs to another party.

You raise some important issues, GG. For what it's worth, Gulf News reported just today that the official listing of freehold properties has been published in a gazette dated, 03 July 2006. Read more here.

The sales agreements of some apartment buildings being sold at present indicate that the buyer will be in possession of not only his unit but he will also have part-owenership in common with other unit holders of the shared-use or common areas and facilities. This shared ownership will be governed by an association of owners.

This association of owners will also be repsonsible for the management of the property which it may delegate or contract out. This responsibility will include the right to determine management fees.

Stipulations, such as these, contained in the sales agreement will have to be backed up by law. The presumption is that a detailed commonhold law to address such issues will issued by year end.

Therefore, freehold properties are indeed available in the recently stipulated zones (this according to recent clarification of the initial property law issued in March 2006) and some properties being sold do appear to have commonhold ownership of the shared or common-use areas stipulated in the sales agreements--expected soon to be enforeced by law.

That being said, some properties do not include reference to commonhold ownership of common-use or shared facilities and areas and do not clarify ownership of the land. So, the buyer will need to determine which type of property is being sold on a case-by-case basis.

In International City, for example, I have seen buyers complain that the building which housed their unit had been sold to a new owner without their advance knowledge. Therefore, in such cases, they are in some sense vulnerable to the decisions and actions of the land or building owner, even though they are in sole possession of a given unit.